Emerging markets slowdown hits global consumer giants

A man walks past Four Acres, Unilever’s first leadership development centre outside the UK, in Singapore. In January, Unilever warned uncertainty in emerging economies would likely hold back growth this year.

By John Revill /Dow JonesA number of European consumer giants, including Nestlé and Pernod Ricard, said yesterday their results last quarter were whacked by a continuing slowdown in formerly fast-growing emerging markets like China and Brazil, dimming prospects for 2014. Food marketer Nestlé and liquor seller Pernod Ricard hitched weak results in part to struggles in emerging markets. French advertising conglomerate Publicis Groupe, which creates advertisements for many big-name consumer brands, also blamed slower sales in emerging markets, particularly China, for a poor performance. The disappointing results underscore how the slippage in emerging markets is continuing to deprive Europe’s consumer companies of a key growth driver. Many European companies had relied on sales in China, Brazil, Mexico and other emerging economies to maintain revenue momentum while developed markets remained sluggish. Now, support from the emerging world is fading without a pickup in Europe-where recession-wary consumers remain cautious about spending-or the US-where tastes are changing. Companies indicated growth might be hard to come by in the coming years, suggesting a period of feeble expansion might be the new normal. And advertising agencies are often a barometer of economic trends, suggesting Publicis’s weakness points to a rough ride for China and other emerging markets this year. “The macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets,” Nestlé chief executive Paul Bulcke said. “2014 will likely be the same.” Vevey, Switzerland-based Nestlé, the world’s biggest food maker by revenue, said growth in its Asia Oceania Africa region, which contains the big Chinese market, cooled to 7.4% in 2013 from 10.3% a year earlier. Meanwhile, the company’s sales in Europe posted an anaemic 0.8% rise, while growth in the Americas continued to slow. Nestlé’s organic growth, a widely watched measure that strips out the impact of currency fluctuations and acquisitions, clocked in at a sluggish 4.6%, missing its long-held target of between 5% and 6% for the first time in four years. The company didn’t to commit to recapturing the range this year, forecasting organic growth of “around 5%.” Nestlé, which makes KitKat chocolate bars and Nescafé instant coffee, said its full-year profit fell 2.2% to a worse-than-expected 10bn Swiss francs ($11.16bn). The slowdown puts European companies, which invested heavily in recent years to tap the flourishing middle classes of the emerging markets, in a bind. China, in particular, had helped offset the deep fall in sales and profits from the eurozone, as well as stagnant revenue in the US, since the recession. But many companies that have bet big on markets such as China and Brazil, have felt the cooling effect of slower economic growth as well as China’s policy shifts in recent quarters. Yesterday, Pernod Ricard crushed hopes that Chinese consumers would rush back to luxury stores and fancy restaurants in the months to come as sales dropped a further 18% in the three months ended December 31. Paris-based Pernod, like other luxury-goods companies, has seen sales slide for the past year as a Chinese anticorruption campaign curbed lavish state banquets and the practice of gift-giving among officials and executives. Pernod Ricard warned a sales decline in China would weigh more heavily on the group’s profits going forward, saying the company expects no pickup in the near future. Companies began telegraphing the potential impact of sputtering emerging markets earlier in the year. In January, Unilever, which makes Ben & Jerry’s ice cream and Dove soap, warned uncertainty in emerging economies would likely hold back growth this year. The Anglo-Dutch company, which gets nearly 60% of its revenue from China, India and other emerging markets, said underlying sales growth-similar to Nestlé’s organic-growth measure-fell to 4.3% from 6.9% a year earlier, the first drop since 2009. Overnight, Mondelez International said organic sales grew 1% in Europe in the fourth quarter but dropped 6.1% in the Asia Pacific region due to lower pricing across most of the region and a decline in China, where revenue had a midteens percentage decline. The maker of Oreo cookies, however, posted earnings that nearly doubled because of the $2.23bn resolution of a dispute with Starbucks Corp The crackdown in China extended beyond consumer-products makers. Publicis, the ad firm, said yesterday that clients, particularly from the luxury industry, postponed ad campaigns as they reckoned with the government’s policy shift and the less-buoyant economy overall. Outside of China, growth also slowed in other emerging economies, such as India, Publicis said. The recent depreciation of emerging-market currencies also weighed on profits and sales at companies, including Pernod Ricard and Nestlé. Page 10